# [1955] 2 S.C.R. 1247

- **Citation:** [1955] 2 S.C.R. 1247
- **Court:** Supreme Court of India
- **Decided:** 1955
- **Case number:** Civil Appeal No. 21 of 1954
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1955-2-s-c-r-1247-1481
- **Pages:** 39

## Headnote

2·s.c.R.
SUPREME COURT REPORTS
·1247
this purpose in juxta-position with section 47 of. the
Travancore Act XXIII of 1121 cannot be held to be
discriminatory and violative of the fondamental right
guaranteed
under
article 14 of the Constitution. The
proceedings which took place in the course of investigation by the Commission up to the 26th January
1950 were
valid and so also were the
proceedings
during. the course of investigation which took place
after the inauguration of the Constitutiol). on the 26th
January 1950 under which the petitioner, as a citizen
of our Sovereign Democratic Republic acquired inter
alia .guarantee of the fundamental right under article
14 of the Constitution.
The result, therefore, is that .all the contentions
urged on behalf of the petitioner
fail and Civil Appeal No. 21 of 1954 must be ·dismissed with costs.
Civil ·Appeals Nos. 21 and 22 of 1954
wil~ accordingly be diSlllissed with costs.
There wm be a set off
for costs.
M. CT. MUTHIAH & 2 OTHERS
ti •.
THE COMMISSIONER OF INCOME-TAX,
MADRAS &, ANOTHER;
[S. R.
DAs~
ACTING
C.J,
V1vr:rn BosE,
BHAcrWAn,
J AGANNADHADAS and B. f. SINHA JI.)
Constitution of India, Art. ]'/--Taxation on Income (Investigation Commisiion) Act, 1947 (Act XXX of 1947), s. 5(1)-'Whetil~
.ultra vires 'lhe· Constitution in vie1v of s. 34 of Indian lncome-Ta1r
Act, 1922 (Act XI of 1922) as amended by the 'Income-Tax and Bu1iness Profits .Tax (Amendment) Act, 1948 (Act XLVlll tif 1948) and
the Indian· Income-Tax (Amendment)
Act, 1954 (Act X!XXW uf
1954).
H~ld (Per S .. R. DAs,
.A,cTING
C.J., V1v1AN iBoSE, .BHAcwATI
and B. P. SINHA, JJ . .}AGANNAoHADAS J., dissenting) that s. 5.(1) of the
T<1xation on .. Income (Investigation
Commission)
Ac~,· .1947 (Act
XXX of 1947) iis ultra vires the Constitution as it ii discriminawry
and violative of the fundamental .right
guaranteed by . Art. l4 of
the Constitution by reason of two amenc;lments which were made in
,s. 34 of thf: Indian In~omc-Tax Act, 1922 (Act XI afl922) one ia
.1948 by the .c:nac[ment of the Income-T.u: and Busine$& Profit$ Ta
1955
A. Thangal Kunju
Musaliar
V•
M. Vmliit°'halam
Polti and anothlr
Bhagwati].
1955
D1umbu 20.
1955
.M. Ct. Mutkiah
a.ti 2 otlrns
V·
Thi c....,;.,ioner
qf ltlcomrtax,
Ma,Jrasand
anot/rn.
1248
SUPREME COURT REP.ORTS
r19s51
(Amendment) Act, 1948 (Act XLVIII of 194~) and·the other in 1954
by the enactment of the Indian Income-Tax (Amendment) Act,
1954 I Act XXXIII of 1954).
If the provisions of s. 34(1) of the
Indian
Income-tax
Act
as
it stood before
its
amendment by Act XLVIII of 1948
had
been the only provisions
to be
considered, the .Court would have
reached the same
conclusion as it did in A. !hangal. Kunju Mu.
saliar v. M. Venkitai:halam Potti & Anr., (rl955] 2 S.C.R. 1196),
but the position was materi~lly ·affected by reason of two
amend·
ments made in that section
by two Acts, one in 1948 atid the
other in 1954.
Amended s. 34(1) of the Indian Income-tax Ace was substantially different fwm the old s. 34(1) which was in operation up to the
8th September 1948. The words "if in consequence of definite in·
formation which has come_ into his possession the lncome·tax Officer
discovers that income, profits or gains cP.argeable to incbme·tax have
escaped assessment irt any yea1 ........ " which appear in the old
section were substituted by the words uif the Incom~-rax Officer has
reason to \>elieve
that by reason of the omission or failure on the
part of the :assessee ........ income,
profits or gains chargeable to
income-tax ·have escaped
assessment ........ ". The
requisites
of
(i)
14definite" information (ii) which had ucome into" possession of
the Income-tax Officer and in consequence of which (iii) he "discovers" that income,
profits or gains chargeable to income-tax had
escaped assessment,. were no longer necessary a.nd the only thing
which was required to enable the Income-tax Officer to take proceedings under s. 34(1) as amended was that he should have reason to
believe that by reason of the omissio

## Text

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2·s.c.R.
SUPREME COURT REPORTS
·1247
this purpose in juxta-position with section 47 of. the
Travancore Act XXIII of 1121 cannot be held to be
discriminatory and violative of the fondamental right
guaranteed
under
article 14 of the Constitution. The
proceedings which took place in the course of investigation by the Commission up to the 26th January
1950 were
valid and so also were the
proceedings
during. the course of investigation which took place
after the inauguration of the Constitutiol). on the 26th
January 1950 under which the petitioner, as a citizen
of our Sovereign Democratic Republic acquired inter
alia .guarantee of the fundamental right under article
14 of the Constitution.
The result, therefore, is that .all the contentions
urged on behalf of the petitioner
fail and Civil Appeal No. 21 of 1954 must be ·dismissed with costs.
Civil ·Appeals Nos. 21 and 22 of 1954
wil~ accordingly be diSlllissed with costs.
There wm be a set off
for costs.
M. CT. MUTHIAH & 2 OTHERS
ti •.
THE COMMISSIONER OF INCOME-TAX,
MADRAS &, ANOTHER;
[S. R.
DAs~
ACTING
C.J,
V1vr:rn BosE,
BHAcrWAn,
J AGANNADHADAS and B. f. SINHA JI.)
Constitution of India, Art. ]'/--Taxation on Income (Investigation Commisiion) Act, 1947 (Act XXX of 1947), s. 5(1)-'Whetil~
.ultra vires 'lhe· Constitution in vie1v of s. 34 of Indian lncome-Ta1r
Act, 1922 (Act XI of 1922) as amended by the 'Income-Tax and Bu1iness Profits .Tax (Amendment) Act, 1948 (Act XLVlll tif 1948) and
the Indian· Income-Tax (Amendment)
Act, 1954 (Act X!XXW uf
1954).
H~ld (Per S .. R. DAs,
.A,cTING
C.J., V1v1AN iBoSE, .BHAcwATI
and B. P. SINHA, JJ . .}AGANNAoHADAS J., dissenting) that s. 5.(1) of the
T<1xation on .. Income (Investigation
Commission)
Ac~,· .1947 (Act
XXX of 1947) iis ultra vires the Constitution as it ii discriminawry
and violative of the fundamental .right
guaranteed by . Art. l4 of
the Constitution by reason of two amenc;lments which were made in
,s. 34 of thf: Indian In~omc-Tax Act, 1922 (Act XI afl922) one ia
.1948 by the .c:nac[ment of the Income-T.u: and Busine$& Profit$ Ta
1955
A. Thangal Kunju
Musaliar
V•
M. Vmliit°'halam
Polti and anothlr
Bhagwati].
1955
D1umbu 20.
1955
.M. Ct. Mutkiah
a.ti 2 otlrns
V·
Thi c....,;.,ioner
qf ltlcomrtax,
Ma,Jrasand
anot/rn.
1248
SUPREME COURT REP.ORTS
r19s51
(Amendment) Act, 1948 (Act XLVIII of 194~) and·the other in 1954
by the enactment of the Indian Income-Tax (Amendment) Act,
1954 I Act XXXIII of 1954).
If the provisions of s. 34(1) of the
Indian
Income-tax
Act
as
it stood before
its
amendment by Act XLVIII of 1948
had
been the only provisions
to be
considered, the .Court would have
reached the same
conclusion as it did in A. !hangal. Kunju Mu.
saliar v. M. Venkitai:halam Potti & Anr., (rl955] 2 S.C.R. 1196),
but the position was materi~lly ·affected by reason of two
amend·
ments made in that section
by two Acts, one in 1948 atid the
other in 1954.
Amended s. 34(1) of the Indian Income-tax Ace was substantially different fwm the old s. 34(1) which was in operation up to the
8th September 1948. The words "if in consequence of definite in·
formation which has come_ into his possession the lncome·tax Officer
discovers that income, profits or gains cP.argeable to incbme·tax have
escaped assessment irt any yea1 ........ " which appear in the old
section were substituted by the words uif the Incom~-rax Officer has
reason to \>elieve
that by reason of the omission or failure on the
part of the :assessee ........ income,
profits or gains chargeable to
income-tax ·have escaped
assessment ........ ". The
requisites
of
(i)
14definite" information (ii) which had ucome into" possession of
the Income-tax Officer and in consequence of which (iii) he "discovers" that income,
profits or gains chargeable to income-tax had
escaped assessment,. were no longer necessary a.nd the only thing
which was required to enable the Income-tax Officer to take proceedings under s. 34(1) as amended was that he should have reason to
believe that by reason of the omission
or_ faiiu·rc on .the part of the
as!iessee income, profits qr gains chargeable to income-tax had escaped
assessment for a particular year.
Whereas
before
this
amended
s. 34(1) came to be substituted for the olds. 34(1) there was no comparison between the provisions of .s. 5(1) of Act XXX of 1947 and
s. 34( I) of the Indian Income-tax Act as it then stood, the provisions
of s. 34(1) as amended after the 8th September 1948 could
stand
comparison with the provisions of s, 5(1) of Act XXX of 1947 and
the cases which were covered by s. 5 ( 1) of Act XXX of 194 7 could
be dealt with under the procedure laid down in s. 34(1) of the Indian
Income-tax Act. After the 8th September 1948, therefore, even ·in the
case of substantial evaders of income-tax who were a distinct class
by themselves intended to be treated by the
drastic and summary
procedure laid down 1'Y Act XXX of 1947, some c:;tses that were
already referred by the Central Government !or investigation by the
Comm'ission could be dealt with under that Act _arid other cases,
though falling within the sam~ class or category,
could be dC:alt
With tinder the procedure prescribed in the amended s. 34( 1) of the
Indian .Y.ncome-~x Act; The persons who were thus dealt with under
s, 34( 1) of the Indian Income-tax Act had available to them the
whole oroeedure laid down· in that Act including the right to inspect
document< and the nght to question the findings of fact arrived at
2S.C.R.
SUPREME COURT REPORTS
1249
by the Income-tax Officer by the procedure
of appeal and revision
and ultimate scrutiny by the Income-tax
Appellate Tribunal which
was denied to those
persons whose
cases had been referred by the
Central Government for investigation by the
Commission under
s. 5(1) of Ac.t XXX of 1947.
Different persons, though falling under the same class or category of substantial evaders of income-tax, would, therefore, be subject to different procedures, one a summary and drastic procedure
and the other a normal procedure which gave to the assessees various
rights which were denied to those who were specially treated under
the procedure prescribed in Act XXX of 1947.
Pe1·
JAGANNADHADAS J.-The
class
of
persons falling
under
s. 5(1) of the Taxation on Income (Investigation Commission) Act,
1947 (Act XXX of 1947) is totally different from that which falls
within amended s. 34 of the Indian Income-Tax Act 1922
(Act XI
of 1922) and therefore s. 5( 1) of Act XXX of 1947 is not unconstitutional as offending Art. 14 of the Constitution.
Suraj Mall
Mohta v. A. V. Visvanatha
Sastri and Another
(f 19551 1 S.C.R. 448), Shree Meenakshi Mills Ltd. v. A. V. Visvanatha Sastri and Another (f 1955] 1 S.C.R. 787), A. Thangal Kunju
Musaliar v. M. Venkitachalam Patti & Anr. and M. Venkitachalam
Patti & Anr. \',
A. Thangal Kunju
Musaliar,
([1955] 2 S.C.R.
1196), Syed Qasim Razvi v. The State of Hyderabad and Others
(f1953] S.C.R. 581), Habeeb Mohamed v. The State
of Hyderabad (f 1953] S.C.R. 661) and Gangadhar Baijnath and others v. Income-tax
Investigation
Commis,:ion,
etc. (A.LR. 1955 All. 515),
referred to.
ORIGINAL
JuRISDICTION : Petition No. 646 of 1954.
Petition under
Article 32 of the Constitution of
India.
C. R. /agadisan, Nattnit Lal and
krishnan,
(T. V. Balakrishnan.
with the
the Court) for the petitioners.
T.
V. Balapermission of
C. K. Dapluary, Solicitor-General of India, ( G. N.
Joshi, R. Ganapathy Iyer and R. H. Dhebar, with him)
for the respondents.
1955.
December 20.
BttAGWATI
J.-This
pet1t1on
under Article 32
of
the Constitution
also raises
the
question
about
the
constitutionality of section 5 ( 1) of the Taxation on
Income
Investigation
Commission
Act,
1947
(XXX
of 1947).
1955
M. Ct. Muthiah
and 2 others
V•
The Commissioner
qf Income-tax,
Madras and
another.
1955
M. Ct. Muthiah
and 2 others
V•
The ·Commissioner
of Income-tax,
Madras and
aMther
Bhagwati J.
1250
SUPREME COURT REPORTS
(1955]
The facts which led to the filing of this petition
may be shortly stated.
Sir M. Ct. Muthiah Chettiar who carried on a flourishing banking business in India and foreign countries died in or about 1929 leaving behind him two
sons M. Ct. M. Chidambaram Chettiar (since deceased)
and M. Ct. M. Muthiah Chettiar, petitioner 3, and his
widow Devanai Achi.
M.
Ct.
M.
Chidambaram
Chettiar
continued
the
ancestral
banking
business
and also started
several
commercial enterprises. He
died by an accident while travelling in a plane in the
· year 1954 leaving behind him his two sons, the petitioners 1 & 2.
Devanai Achi had predeceased him.
The petitioners
1 & 2 are the legal representatives
of the deceased M. Ct. M. Chindambaram Chettiar and
also the representatives of their grandmother Devanai
A chi.
The Central Government, in exercise of its powers
under section 5 ( 1)
of Act XXX of 1947, referred to
the Income-tax Investigation Commission
R.
C. Nos.
516, 517 and 518 relating to M. Ct. M. Chidambaram
Chettiar, M.
Ct. M. Muthiah Chettiar, petitioner 3,
and Devanai Achi. The Commission, after holding an
enquiry in all the three cases, recorded their findings
and
held that an aggregate sum of Rs.
10,07,322-4-3
represented the undisdosed income during the investigatjon period and directed . distribution of this sum
over the several years in the manner indicated by
them in Schedule A to their report.
This report was
submitted by the Commission to the Government on
the 26th August
1952. The Central .3overnment considered the report and, purporting to act under section 8(2) of
the Act, directed by their order No. 74
(26)
I.T·/52 dated
the 16th September
1952
that
appropriate action
under the Indian Income-tax Act
be taken against the assessees with a view to assess
or re-assess, the income which had escaped assessment
for the years 1940-41 to 1948-49.
In pursuance of
the said directions of the Central
Government the
Income-tax
Officer,
City
Circle
I,
Madras, issued notices
under section 34 of the
Indian
Income-tax Act and made the
re-assessment for the
I
2S.C.R.
SUPREME COURT REPORTS
1251
years 1940-41,
1941-42
and 1943-44
to 1948-49 based
upon the findings, of the Commission which were
treated
as
final and conclusive.
The
assessment
orders for the years 1940-41, 1941-42 and 1948-49 were
served on the assessees on
the 20th February
1954.
Assessment orders for the years
1943-44 to 1947-48
were served on the 12th May 1954. The re-assessment
order for
the year
1942-43 was not made thaugh
notices under section 34 of the Indian Income-tax Act
had been issued by
the Income-tax Officer on the assessees on the 19th March 1954.
It appears that these
re-assessment
proceedings
for the year 1942-43
are
yet pending and no assessment order in respect 'Of
that year has yet been served on the petitioners.
In regard to , the assessment
orders which were
served on the 20th
February
1954, the
petitioners
preferred on the 18th May 1954 applications to the
Commissioner of Income-tax, Madras, under section
8(5) of the Act for references to the High Court on
questions of law arising out
of those
re"assessment
orders
passed
by
the Income-tax Officer.
Similar
applications were preferred thereafter in respect of
the re-assessment
orders which were served on the
petitioners on the 12th May
1954. These applications are still pending.
On the 6th Decernber 1954, the petitioners filed the
present
petition contending that the provisions of
the Act XXX of 1947 were illegal, ultra vires and unconstitutional mainly on the ground that they were
violative of the fundamental right guaranteed under
article 14 of the Constitution.
The grounds urged in support of this contention
were not felicitously expressed.
The petitioners appear to have mixed up the contentions which could
be urged as
a result of our judgments in Sw:aj Mall
Mohta v. A. V. Visvanatha Sastri and Anvther(1) and
Shree Meenakshi Mills Ltd. v. A. V.
Visvanatha Sastri
and Another(2 ).
They contended in the first instance
that after the amendment of section 34 of the Indian
Income-tax Act by Act XXXIII of 1954, which
inter
(l) [1955] I S.C.R. 448.
(2) (1955] l S.'C.R. 7e7.
M .. Ot. Muthiaiz
l1lld 2 ·olMr>
,,.
ThlCommi.si....,
of lncume-1/Jx,
Madrssallii
llll!lthrr
.Bhtrgwati J.
1955
M. Ct. MuJhi.h
and 2 others
V•
The Commissioner
of Income-tax,
MadrD> and
another
Bhagwati].
1252
SUPREME COURT REPORTS
[1955]
alia, added sub-seetions (1-A) to (1-D) to section 34,
the provisions of section 5 ( 1) of the Act became discriminatory, as on a reading of both the enactments,
Act XXX of 1947 and the Income-tax Act as amended in 1954 showed that they
~pplied to the same
category
of persons and there was nothing in section
5(1) of the Act or any other provision of the said Act
disclosing
any valid or reasonable
classification.
The
provisions of Act XXX of 1947 could not,
therefore,
be sustained
011
the ground of classification to avoid
the mischief of article 14 of the Constirution.
The
petitioners obviously relied upon our decision in Shree
Meenakshi Mill's· case, supra, in support of this contention.
The petitioners thereafter
proceeded to set out
their alternative contention based upon our decision
in Suraj Mall Mohta's case, supra, though it was not so
stated in express terms.
They contended that Act
XXX of 1947
enabled the Central Government to
discri.minate between
one
person and
another
inasmuch as they were authorised to pick and choose cases
of persons who fell within the group of those who had
substantially evaded taxation on income, that the act
of the Government in rekrring· some evaders to the
Commission was wholly arbitrary and there was nothing to eliminate the possibility of a favouritism or
a
discrimination against an
individual by
sending or
not sending cases to
the Commission as between two
persons both of whom might be within the group of
those
who have evaded the payment of tax to a substantial
extent.
They further
contended
that
the
procedure prescribed
under the
impugned Act
was
substantially more prejudicial and more drastic to the
assessee
than
the
procedure
prescribed
under
the
Indian Income-tax Act.
There was no reasonableness
or justification that one
person
should
have
the·
advantage of the procedure prescribed by the Indian
Income-tax
Act
while
another
person
similarly
situated should be deprived of it.
They, therefore, contended that section 5(1) of the
Act was discriminatory and violative of article 14 of
the Constitution and asked for the issue of a writ of
2!5.0.Jt
SUPREME COURT REPORTS
1253
rertiorari or any other appropriate writ, direction. or
order quashing
the report of the Income-tax
Investigation
Commission dated
the 29th August 1952 en- ·
closed
as Annexure A to the ·petition and the assessment orders of the Income-tax Officer for the years
1940-41,
1941-42,
and
1943-44
to
1948-49
as
being
unconstitutional, null and void and also of a writ of
prohibition calling upon the Commissioner of Incometax, Madras; respondent 1 and the Income-tax Officer,
City Circle I, Madras, respondent 2 or their subordinate officers
to forbear from implementing the
findings of the Investigation Commission with regard to
the year l942-43.
This petition was heard a:long with Civil Appeals
Nos. 21 and 22 of 1954, A. Thangal Kunju Musaliar
v. M. Venkitachaalam Patti & Another and M. VenkitaMusaliar (1), which also raised inter alia the cognate
question
about
the
constitutionality of
section 5 ( 1)
of the Travancore Act XIV of 1124 which was in
pari materia with section 5 ( 1) of Act XXX of 1947.
In regard to the question whether there is a rational basis of cla~sification to be found in the enactment of section 5(1) of the Act, the preamble and the
relevant provisions of Act XXX of 1947 are the same
as were considered by us in considering this question
in r~lation to the Travancore Act XIV of 1124.
The
words "substantial extent" also have been used in
both the Acts and in the present case as in the cases
of the Travancore petitioners concerned in . the Evasion Cases Nos. 1 and 2 of 1125 (M.E.), Gauri Shanker,
Secretary,
Income-tax
Investigation
Commission
made
an
affidavit dated
the 21st September
1955
wherein he set out the events and circumstances under
which Act XXX of 1947 came to be passed.
In paragraph 4 of that affidavit he stated:
"It was found that
during the period of the last
war large fortunes . had been made by businessmen.
Controls· imposed by Government on prices and distribution, were · often evaded and secret profits
~re
made and. kept outside the books and often kept invested ia shares
and
real property acquired in the
(I) [1955] 2 S. C.R. 1196.
1955
M. Ct; Muthiah
and 2 others
V•
The-Commissioner
of Ineome-tax,
Madras and
another
.Bhagwati ].
1955
M. Ct. Muthiah
and 2 others
V•
The Commissioner
of Income-tax,
Madras and
another
BhagwatiJ.
1254
SUPREME COURT REPORTS
[1955]
names of benarnidars or in cash purchases of gold,
silver
and jewellery.
The machinery of Income-tax ·
administration was
unable
to cope
with the large
number of complex cases that had to be dealt with,
during the war years and a few years after its termination.
As there had been a large scale evasion
of
tax during this period, it became necessary
in
the
public interests
to investigate
cases .of evasion of
income-tax and bring under assessment huge profit that
had escaped assessment.
As a preliminary step
in
this direction, a demonetisation Ordinance was passed
in January
1946
sterilising the High Denomination
Notes in which secret profits earned during the war
years had been partly kept and calling for a statement
regarding the source of such profits. This was followed by
the Income-tax Investigation Commission
Bill.
In view of the prolonged and complicated enquiries
that had to be made to unearth
these secret war
profits and bring them under assessment
a special
Commission was constituted to enquire into the profits made since 1939 but which had escaped assess.ment.
I say
that
what is intended to in.,estigate is evasion
of payment of taxation
which could reasonably be
called
"Substantial"
and
therefore
the classification
is real
classification.
The statute merely leaves the
selective application
of the law to be made
by the
executive
authorities
in
accordance
with
the standards indicated in the Act itself"
This
affidavit
furnished
the
background
and
the
surrounding
circumstances
obtaining
at
the
time
when
Act XXX of 1947 was enacted and if this background is taken into account it would be obvious that
the substantial
evaders of pavment
of
income-tax
whose cases were referred by the Central Government
to
the Commission formed a class by themselves and
there was
a rational basis of classification
in
the
enactment
of section 5 ( 1) of the Act.
The argument
that
the terms
of section 'i(l)
enabled
the Central Government
to pi<:k and choose
the cases of p"articular individuals falling
within thot
category
leaving the cases
of other persons falling
within the same category to be dealt with in accord-
2S.CR.
SUPREM'E C()U:RT REPORTS
1255
ance
with the provisions of section 34(1) of the
Indian
Income~tax Act as. it stood prior to the amendment of 1948 has been already
dealt with in our
judgment in A. Thangal Kunju Musaliar v· M. Venkitachalam Patti & Another, supra; while dealing with
the corresponding provisions of section 5 ( 1)
of the
Travancore Act XIV of 1124 and section 47 of the
Travancore Act XXIII of 1121 and we have pointed
out that so far as the Indian Income-tax Act as it
was in existence on the 18th April 1947 which was
the date on which Act XXX of 1947 received the
assent of the Governor-General) stood unamended by
Act XL VIII of 1948, the cases of persons who
fell
within the· category of substantial evaders of incometax within
the meaning of section 5(1) of
the Act
could not have been dealt with under the provisions
of section 34(1) of the Indian Income-tax Act
and,
therefore, there was no discrimination and no violation of the fundamental right guaranteed under article 14 of the Constitution.
The other argument that the selection of the persons whose cases were to be referred by the Central
Government for investigation to the Commission was
left to the unguided and uncontrolled
discretion of
the executive or the administrative officials also has
been dealt with in that j_udgment and we need not
repeat our reasons for rejecting the same.
If th~ provisions of section 34(1) of the Indian Income-tax Act as it stood unamended by Act XL VIII
of 1948 (which corresponded with the provisions of
section 47 of the Travancore Act XXIII of 1121) had
been the only provisions to be considered we would
have reached the same
conclusion as we did
in
A. Thangal Kunju Musaliar v. M. Venkitachalam Patti
&
Another, supra.
The position, however, in the
present case· is materiaHv affected by reason of the
two amendments which were made in section 3.4 of
the Indian Income-tax Act, one in 1948 by the enactment of Act XL VIII of 1948 and the other in 1954
by the enactr.11'..ltl of: Act XXXHL of 1954~
See1!ion 34 as amended by Act Y..L VJII of 1948
read as uruler;
!955
M. Ct. Muthiah
and 2 othen
V•
The Commissicner
of IncoT111J·tax,
MadraJ and
arwther
Bhagwati].
1955
M. Ct. Muthiah
and 2 others
v.
The Commissionu
of Income-tax,
Madras and
another
BhagwatiJ.
1256
SUPREME COURT REPORTS
[1955]
"Section 34(1) : If-
( a) the Income-tax Officer has reason to believe
that by reason of the om1ss10n or failure on the part
of an assessee to make a return of his income under
section 22 for any year or to disclose fully and truly
all material facts
necessary
for his
assessment
for
that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or
have
been under-assessed
or assessed at too low a
rate, or have
been made the subject of
excessive
relief under
the Act, or exces.siv~ loss or depreciation
allowance has been computed, or
(b) notwithstanding that there has been no omission or failure
as mentioned in clause (a) on the p1rt
of the assessee, the Income-tax Officer has in
consequence of information
in his
possession
reason
to
believe that
income, profits
or gains chargeable
to
income-tax have escaped
assessment for
any year,
or
have been under-assessed, or assessed
at too low a
rate, or have been made the subject of excessive relief
under this Act, or that excessive loss
or depreciation
allowance has been computed,
he may in cases falling under clause (a) at any time
within eight years and in cases falling under clause
(b)
at any time within four years of the end of that
year,
serve on the assessee, or, if the assessee
is a
company, on the principal officer thereof, a notice
containing all or any of
the requirements which may
be included in a notice under sub-section (2) of section
22 and may proceed to assess
or re-assess
such
income, profits or gains or recompute
the
loss or
depreciation allowance; and
the
provisions of this
Act shall, so far as may be, apply accordingly as if
the notice were a notice issued under that sub-section :
"
Act XXXIII of 1954 introduced into section 34
sub-sections (1-A) tu (1-D).
Section 34(I-A) which is
material for our purposes provided:
"Section. 34 (1-A) : If, in the case of any assessee,
the Income-tax Officer has reason to be!ieve'-
(i) that income, profits
or gains
chargeable
to
income-tax have
escaped
assessment
for any year in
2S.C.R.
SUPREME COURT REPORTS
1257
respect
of which the relevant previous year falls
wholly or partly within the period
beginning on the
1st day of September, 1939, and ending
on the 31st
day of March, 1946; and,
(ii) that the income, profits or gains
which
have so escaped asses,sment for any such year or years
amount, or
are
likely to amount, to one lakh of
rupees or more;
he may, notwithstanding that the period
of
eight
years or, as the case may be,
four years specified in
sub-section ( 1)
has expired in respect thereof,
serve
on the asses,see, or, if the assessee is a company, on
the
principal officer
thereof,
a notice containing all
or any of the requirements which may be included
in a notice under sub-section (2) of section 22, and
may proceed to assess or re-assess the income, profits
or
gains of the asse~see for all or any of the years
referred to in clause (i), and thereupon the provisions
of this Act (excepting those contained in clauses ( i)
and (iii) of the proviso to sub-section (1) and in subsections
(2) and (3)
of this section) shall, so far as
may be, apply accordingly:
Provided
that the Income-tax Officer shall not
issue a notice under
this sub-section unless he has
recorded his
reasons for doing so,
and the Central
Board of Revenue
is.' satisfied on such reasons recorded
that it is a fit case for the issue of such notice:
Provided further that no such notice shall be
issued after the 31st day of March, 1956".
Amended section 34 ( 1)
of the Indian Income-tax
Act was substantially different
from the old section
34(1) which was in operation up to the 8th September
1948.
The words
"if in consequence of definite information which
has come into his possession the
Income-tax Officer discovers that income, profits or
gams
chargeable
to income-tax have escaped
assessment
in any year .......... " which appear in the old
section were substituted by the words "If the Incometax Officer has reason to believe
that by reason of
the omission
or failure
on the part of the assessee
....... , .. income, profits
or gains chargeable to in:-
come-ta'x
have
escaped
assessment ....... ; " . The
1955
M. Ct. Muthiah
and 2 others
V•
The Commissioner
of Income-tax,
Madras and
another
Bhagwati].
1955
M. Ct. Muthiah
and 2 others
V·
The Commissiontr
of lncome-.ttzx,
Madras and
another
Bhagwati].
1258
SDPREME C'OORT REPORTS
[19551
requmtes of (i) "definire" information (ii) which had
"come into" possession of the Income -tax Officer and
in consequence of which (iii) he "discovers" that income, profits or gains chargeable to income-tax had
escaped assessment, were no longer necessary and the
only thing which was required to enable the Incom~
tax Officer to take proceedings under section 34 (1)
as amended was that he should have reason to believe that by reason of the omission or failure on the
part of the assessee income, profits or gains chageable to income-tax had escaped assessment for a particular
year.
Whereas before this amended section
34( 1) came to be substituted for the old section 34 ( 1)
there was
no comparison between the provisions of
section 5(1) of Act XXX of 1947 and section 34(1) of
the Indian Income-tax Act as it then stood, the provi~ons of section 34(1)
as
amended after the
8th
September 1948 could stand comparison with the provisions of section 5 ( 1) of Act XXX of 1947 and the
cases which were covered by section 5( 1) of Act XXX
of 1947 could be dealt with under the procedure laid
down in section 34(1) of the Indian Income-tax Act.
After the 8th September 1948, therefore, even in the
case of substantial evaders of income-tax who were a
distinct class
by
themselves intended to be treated
by the drastic and
summary procedure
laid down by
Act XXX of 1947,
some cases
that were
already referred
by ' the Central Government for
investigation
by
the Commission could be dealt with under that
Act and other cases, though falling within
the same
class or category, could be dealt with under the procedure prescribed in the amended section 34(1) of the
Indian
Income-tax Act.
The persons who were thus
dealt with under section 34(1)
of the Indian Incometax Act had available to them the whole pmcedure
laid down in that Act including the right to inspect
documents and the right to question the findings of
fact arrived at by the Income-tax
Officer by the procedure of appeal · and revision and
ultimate scrutiny
by the
Income~tax Appellate Tribunal which was·
denied
tt> those persons whose cases had been. refeued
by the Central Government for investigation by the
-
2 S.C.R.
SUPREME COURT REPORTS
1259
Commission under section 5(1) of Act XXX of
1947.
The juxta-position of dates is also very instructive.
It may be noted that in Act XXX of 1947 as it was
originally
enacted, the period
up to which
the
Central Government could make the references to the
Commission for investigation was laid down in section
5(1) of the Act to be 30th June 1948. This period
was extended to the 1st September 1948
by the Taxation on Income
(Investigation Commission)
Second
Amendment Act, 1948
(XLIX of 1948). Act XLIX
of 1948 was passed by the Central Legislature and
received
the assent of the Governor-General on the
8th September
1948, the
s,ame
day on which Act
XL VIII of 1948 which amended section 34(1) of the
Indian Income-tax Act also received the assent of the
Governor-General. Both these Acts, viz., Act XLVIII
of 1948 and Act XLIX of 1948 were passed simultaneously and obviously with a view to bring the provisions of section 5(1) of Act XXX of 1947 and section
34(1) of the Indian
Income-tax Act in tune with each
other.
It appears
to
have
been realized that the
substantial evaders of income-tax in respect of whom
the Central Government had
prim a f acie reasons
for
believing that they had to a substantial extent evaded
payment of taxation on income could not have their
cases
referred
for
investigation
by the Commission
after
the 30th June 1948,
that
having been the time
limit originally prescribed in section 5(1) of the Act.
It also appears to have been felt that the period
could . not
possibly
be extended
beyond
the
1st
September
1948 with the result that apart
from
the
cases
of sustantial evaders of income-tax which
were referred by the Central Government for investigation to the Commission up to the 1st September
1948 there would be a large number of such cases
which though they could not be referr.ed for
investi- ·
gation to the Commission would have to be dealt with
under the ordinary provisions for taxation of
income
that
had escaped assessment available in section 34
and the cognate sections of the Indian Income-tax
Act.
As section 34(1) then stood,
the
requisites of
25-85 S. C. India/59.
1955
M. Ct. Muthiah
and 2 others
V•
The Commissioner
of Income-tax,
Madras and
another
Bhagwati].
I9D5
M. Ct. Muthish
and 2 oth1rJ
v.
Tiu Commissioner
of Income-tax,
Madras and
atroth~
Bhsgwali].
126C
SUPREME COURT REPORTS
[1955]
definite information coming into the possession of the
Income-tax Officer in consequene of
which he discovered that income, profits or gains chargeable to
income-tax
had escaped
assessment would certainly
net
have availed the Government in tracking down
these
substantial
evaders
of income-tax
and it
appears,
therefore, to have
been
thought necessary that
section 34( I) of the Indian Income-tax Act should be
amended so as
to enable the Income-tax Officer to take
proceedings
thereunder if he had reason
to beli:ve
that by reason of omission
or failure on the part of
the assessee ........ income, profits or gains chargeable
to income-tax had escaped assessment for the relevant period.
An amendment of section 34(1) in this
manner would enable Government to pass on the requisite information which they had obtained in regard
to the substantial evaders of income-tax to the Income-tax
Officers
concerned and ask
the
Income-tax
Officers to take proceedings against those evaders
of
income-tax under
the amended section 34(1) of the
Indian Income-tax Act.
That appears to have been
the real object of the amendment of section 34(1) of
the Indiau Income-tax Act with effect from the 8th
September
1948.
The Commission
would proceed
with the references which were made to them up to
the 1st September 1948 and the Income-tax Offi.;ers
concerned would take the requisite proceedings under
section 34(1) of the Indian Income-tax Act as amended after the 8th September 1948 against all persons
whose income, profits or gains had escaped assessm·ent
including
substantial
evaders
of income-tax
whose
casrs would certainly
have been
referred
by the
Central ·Government for investigation to the Coμ1mission if it had been possible for them to do so before
the first September 1948..
After the 8th
September
1948,
there· were two procedures simultaneously in
operation, the one under Act XXX of 1947 and the
other under the Indian Income-tax Act with referenc.c
to persons who fell within the same class or category
viz~ that of the substantial evaders of income-tax.
After the 8th September 1948, therefore, some persons
who fell within the class of substantial evaders of
2S.C.R.
SUPREME COURT REPORTS
1261
income-tax were dealt with under the drastic and
summary procedure
prescribed under Act XXX of
1947, while other persons who fell within the same
class of substantial evaders of income-tax could be
dealt with under the procedure prescribed in the
Indian Income-tax Act after service of notice upon
them under the amended section 34(1) of the Act.
Different persons, though falling under the same class
or
category
of
supstantial
evaders
of
income-tax,
would, therefore, be subject to different procedures,
one a summary and drastic procedure and the oth~r a
normal procedure which gave to the assessees various
rights which were denied to those who were specially
treated under the procedure prescribed in Act XXX
of 1947.
The l_egislative competence being there, these provisions, though discriminatory, could not have been
challenged before
the
advent of
the Constitution.
When, however, the Constitution came into force on
the 26th
January
1950,
the citizens obtained
the
fundamental rights enshrined in Part III of the Constitution including the right to equality of laws. and
equal protection of laws enacted in article 14 thereof,
and whatever may have been the position before the
26th January 1950, it was open to the persons alleged
to belong to the
class of substantial evaders
there;
after to ask as to why some of them were subjected
to
the summary
and drastic procedure prescribed in
Act XXX of 1947 and others were subjected to the
normal procedure prescribed ip section 34 and the
cognate sections of the Indian Income-tax Act, the
procedure prescribed
in
Act
XXX
of
1947 bemg
obviously
discriminatory
and,
therefore, violative of
the fundamental right guaranteed under article 14 of
the Constitution.
It would be no answer to suggest that those substantial evaders whose. cases
were referred by the
Central Government for inves;tigation by the
Commission before the
1st September 1948 formed a class
by themselves leaving others though belonging to the
same
class
or
category
of substantial evaders of
1955
M•·OI. Mrilllidh
and2 othm
V•
Thr Go1nmwio111r
of1mo~,
MadrM arid
anothlr
Bhagwati J•
1955
M; Ct. Muthiah
and 2 others
v.
TM Commissioner
Qf Income-tax,
Madras and
another
Bhagwati J.
1262
SUPREME COURT REPORTS
[1955]
income-tax to be dealt with by the ordinary procedure
prescribed
in the Indian Income-tax Act without
infringing
the fundamental
right guaranteed
under
article 14 of the Constitution.
A similar argument
had been advanced before us by the learned AttorneyGeneral
appearing
for
the Commission in Shree
Meenakshi Mills' case, supra.
The ground which he
had urged was "that the class of persons dealt with
under section 5(1) of Act XXX.of 1947 was not only
the class of substantial tax dodgers but it was a class
of persons whose cases the Central Government, by
1st September, 1948, had referred to the Commission
and that class had thus become determined finally on
that date,
and that that clas$ of persons could be
dealt with by
the Investigation Commission under
the drastic pz:ocedure of Act XXX of 1947 while section 34 of the Indian Income-tax Act as amended
empowered the I11come-tax
Officer
to deal
with cases
other
than
those
whose cases had been referred
under
section 5(1)
to the Investigation Commission
...... " Mahajan, C. J. who delivered the judgment
of the Court dealt with this argument at page 795 (')
as under:
"As regards
the first
contention canvassed by the
learned Attorney-General it seems to us that it cannot stand scrutiny. The class of persons alleged
to
have been dealt with by section 5 ( 1) of the impugned
Act
was
comprised
of those
unsocial
elements
in
society who during recent
years prior to the passing
of the Act and made substantial profits and
had
evaded payment of tax on those profits and whose
cases were referred to the Investigation Commission
before
1st September, 1948.
Assuming that evasion
of tax to a substantial amount could form a basis of
classification at all for imposing a drastic procedure
on that class,, che inclusion of only such of them whose
cases
had been referred
before 1st September, 1948,
into a class. for being dealt with by the drastic procedure, leaving other tax evaders to be dealt with
under the ordinary law will be a clear discrimination
for
the reference
of the case within a particular time
(!) [1955] l $.C.R. ·787, 795.
2S.C.R.
SUPREME COURT REPORTS
1263
has no special or rational nexus with · the necess.ity
for drastic procedure ...... "
These observations were made to repel the particular
argument of the learned Attorney-General but they
did not lay down that in fact section 5(1) was confined to such a limited class.
We are
further supported in this view by the fact
that by
the later amend111ent of section 34 of the
Indian Income-tax Act effected
by Act XXXIII of
1954, the· time limit for the issue of notice under section 34(1-A) of the Indian
focome~tax Act has been
fixed as the 31st day of March 1956.
It is, therefore,
clear that the period miginally fixed for the reference
of the cases of substantial evaders of income-tax for
investigation by the Commission, viz., 30th June, 1948
or the extended period, viz.,
1st September, 1948 provided in section 5(1) of Act XXX of
1947 or the
period fixed by the new section 34(1-A) of the Indian
Income-tax Act., viz., 31st day of March 1956 was not
a
necessary attribute of
the
class
of substantial
evaders of income-tax but was merely an accident and
a measure
of administrative
convenience and was not
an element in the formation of the particular class of
substantial evaders of income-tax.
It follows, therefore, that after the inauguration of
the C,onstitution on the 26th
January, 1950,
the
persons
whose
cases were
referred for investigation by
Central Government to the Commission up to the 1st
September, 1948 could, to use the words of Mahajan,
C. J. in Shree Meenakshi Mills' case, supra, at page 794
ask:
" ...... why are
we now
being dealt with by the
discriminatory
and drastic procedure of Act XXX of
1947 when those similarly
situated
as
ourselves
can
be dealt with by the Income-tax Officer under the
amended provisions
of section 34 of the Act? Even
if we once bore a distinctive label that distinction no
longer subsists and the label now borne by us is the
same as is borne by persons who can be dealt with
under section
34 of the Act as amended; in other
words, there is nothing uncommon either in properties
or in characteristics between us and those
evaders · of
1955
M. Ct. Muthiah
and 2 others
"·
T ht Gommissiontr
of Income-tdx,
Madras and
another
Bhagwat. J.
1955 -
M. Cl. Mulhiah
ad2 oU-1
.